Key Takeaways

  • Contracts in business law are classified by formation, consideration, execution, and validity.
  • Common forms of contract include sales, leases, employment, nondisclosure, licensing, government, and option contracts.
  • Additional forms include fixed-price contracts, cost-plus contracts, time and materials contracts, implied-in-fact contracts, and unconscionable contracts.
  • Contracts must meet legal requirements like offer, acceptance, lawful consideration, and legal capacity to be enforceable.
  • Specialized forms of contracts are common in industries such as construction, technology, government procurement, and services.
  • Choosing the right form of contract is critical to ensure clarity, enforceability, and proper risk allocation.

Forms of contract in business law come in various types and classifications. At the base level, a contract is a written agreement between two or more parties to provide a service or product. Contracts are enforceable by law and must meet specific criteria to be valid. We highly recommend you to engage with an experienced business contract attorney.

Types and Classifications of Business Law Contracts

Contracts in business are used to document the service, sale, or transfer of ownership of a product or property. The parties that take part in a contract can be corporations, partnerships, individuals, and governments. Business law contracts are classified based on four criteria:

  • Formation
  • Nature of consideration
  • Execution
  • Validity

The criteria are then broken out into types.

Formation contracts are classified into three types:

  • Express contracts, which include expression of conversation in the contract.
  • Quasi-contracts do not include an offer or acceptance which results in there not being a contractual relationship between partners.
  • Implied contracts that have no expression.

Nature of consideration contracts are classified into two sections:

  • Bilateral contracts contain a consideration that is moved in both directions after the contract.
  • Unilateral contracts contain a consideration that is moved in one direction after the contract.

Execution contracts are classified into two types:

  • Executed is when the performance is completed.
  • Executor states that any contractual obligations in the future will take place.

Validity contracts are classified into four groups:

  • Valid means the contract is enforceable in a court of law.
  • Void means the contract is not enforceable in a court of law.
  • Illegal means the contract has an illegal purpose.
  • Unenforceable means the contract was not legally filed and formalities were not followed.

Additional Legal Forms of Contracts

Beyond the standard classifications of contracts, business law also recognizes several specialized forms that serve unique purposes. Some key examples include:

  • Fixed-Price Contracts – The parties agree to a set price for goods or services, regardless of actual costs incurred. Common in construction and government procurement.
  • Cost-Plus Contracts – The buyer agrees to pay for actual project costs plus an additional fee or percentage as profit. Often used when project costs are uncertain.
  • Time and Materials Contracts – Payment is based on labor hours worked and materials used. This form is helpful when the scope of work cannot be fully determined in advance.
  • Implied-in-Fact Contracts – Created through the behavior or conduct of the parties rather than a written agreement. For example, accepting goods or services without objection.
  • Unconscionable Contracts – Agreements deemed unfairly one-sided by a court, typically unenforceable if they exploit one party’s lack of bargaining power.

Forming a Contract

To form a contract it must include an offer, acceptance of the offer, and a form of consideration that offers a financial benefit for completion of the contract. Contracts document the obligations negotiated between two or more parties that are legally enforceable.

To create a valid contract, it must include:

  • Offer and acceptance
  • Intent to create a legal relationship
  • Lawful consideration
  • Parties are of full mental capacity
  • Genuine and free consent
  • Legal purpose
  • Confirmation of ability to complete tasks listed in the contract
  • The contract is not void

Essential Contract Elements and Safeguards

While offer, acceptance, and consideration form the foundation of a contract, courts also look for additional safeguards:

  • Clarity of Terms – Ambiguous contracts are harder to enforce, so clear definitions of obligations and timelines are crucial.
  • Capacity and Authority – Beyond mental competence, business contracts require proof that the individual signing has authority to bind the company.
  • Compliance with Statute of Frauds – Certain contracts, like real estate transactions or agreements over a set monetary threshold, must be in writing to be enforceable.
  • Avoidance of Duress or Undue Influence – A contract entered into under pressure or manipulation may be voidable.

These safeguards ensure that the contract is enforceable and protects both parties from later disputes.

Common Contract Types

  • Sales Contracts: A sales contract is used to document the transfer of ownership, including goods, services, or property. State law determines if the sales contract must be in written form. Other terms for sales contracts include a purchase order, bill of sale, or warranty.
  • Lease Agreements: Lease agreements stipulate the conditions when two parties (landlord-tenant) agree to the use of a property. Lease agreements for commercial real estate properties will differ with a higher number of terms, while residential properties must meet the state minimum requirements for habitation. Equipment that is too expensive to purchase can also use a lease agreement.
  • Licensing Agreements: Licensing agreements allow the owner of the intellectual property to share with others, including a copyright or patent. Payments and royalties, terms of use, and scope — including geography and exclusivity — are terms usually included in the agreement.
  • Employment Agreements: Employment agreements are used to set terms related to employment, compensation terms, benefits, and a noncompete clause. These agreements can be oral, but written is preferred as they are more enforceable.
  • Nondisclosure Agreements: Nondisclosure agreements, alternately called a confidentiality agreement, are between an employee and their employer. The agreement is designed to prevent proprietary information from being shared with competitors or publicly.
  • Government Contracts: Federal government contracts fall under three types that are used for the acquisition of services or property from private parties, nonprofits, or state and local governments. The types are procurement contracts, federal grants, and cooperative agreements.
  • Option Contracts: Option contracts gives one party the right to purchase certain rights for a preset amount of money at a future time.

Industry-Specific Contract Applications

Different industries rely on tailored forms of contract:

  • Construction Contracts – Often structured as fixed-price, cost-plus, or unit price contracts, allocating risk between contractor and owner.
  • Technology and IT Contracts – Include software as a service (SaaS) agreements, service-level agreements (SLAs), and software licensing terms.
  • Government Procurement Contracts – Divided into categories like cost-reimbursement contracts, incentive contracts, and indefinite delivery/indefinite quantity (IDIQ) contracts.
  • Franchise Agreements – Outline the relationship between franchisors and franchisees, covering intellectual property use, royalties, and operational standards.

By tailoring contracts to industry needs, businesses can manage risks and comply with regulatory requirements.

Example of Contract in Business

In photography, a photographer will create a contract that states the expectations and responsibilities of the photographer and the client. A photography contract will include the names of all associated parties, the agreed upon cost, payment terms in regards to form of payment and due date, what services will be provided, turnaround time, cancellation policies, deposit amount, and copyright. Other terms can be included as necessary.

Frequently Asked Questions

  1. What are the four main classifications of contracts in business law?
    Contracts are commonly classified by formation (express, implied, quasi), consideration (bilateral, unilateral), execution (executed, executory), and validity (valid, void, voidable, unenforceable).
  2. What is the difference between a fixed-price and a cost-plus contract?
    A fixed-price contract sets a predetermined price, while a cost-plus contract reimburses actual expenses plus a profit margin.
  3. Are oral contracts legally enforceable?
    Yes, many oral contracts are enforceable, but some—such as real estate contracts or those under the Statute of Frauds—must be in writing.
  4. What makes a contract unconscionable?
    A contract is unconscionable if it is unfairly one-sided, leaving one party without meaningful choice, and a court may refuse to enforce it.
  5. Why do industries use specialized forms of contract?
    Industry-specific contracts address unique risks, regulatory requirements, and standards, ensuring clarity and enforceability in specialized fields.

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